Stern School of Business >
Accounting Working Papers >
Please use this identifier to cite or link to this item:
|Title: ||Who, if Anyone, Reacts to Accrual Information?|
|Authors: ||Battalio, Robert H.|
Mendenhall, Richard R.
|Issue Date: ||26-Jan-2007|
|Series/Report no.: ||Joshua Livnat-06|
|Abstract: ||We confirm and extend prior research that suggests accrual levels predict future returns, even after controlling for earnings surprise. We then document abnormal buying behavior around 10-K/Q filing dates that correlates with accrual level. Specifically, we extend Collins and Hribar (2000) by showing that the accrual anomaly persists for a sample of firms followed by analysts after controlling for analyst earnings forecast errors and using exact 10-K/Q filing dates. We then show that large traders, those who
initiate trades of at least 5,000 shares, tend to trade in the correct direction in response to accrual information released in SEC filings after preliminary earnings. This tendency is limited, however, to cases
where earnings conveyed favorable news initially. Investors who use accrual information apparently ignore stocks whose earnings convey unfavorable news or believe that accrual level is not informative for
these firms. We also provide some evidence that the smallest traders react to accrual information, but in the wrong direction.|
|Appears in Collections:||Accounting Working Papers|
Items in Faculty Digital Archive are protected by copyright, with all rights reserved, unless otherwise indicated.